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Apple is breaking out — here’s how to trade it

VIDEO3:2103:21
Here's how to trade Apple into earnings

An Apple a day keeps the bears at bay.

Shares of the tech giant hit a new high on Tuesday. Todd Gordon of TradingAnalysis.com is betting that Apple will soar to even more record highs following its earnings report in two weeks.

"Apple is contained in this beautiful 2017 uptrend channel," he said Tuesday on CNBC's "Trading Nation." "It looks to me like we've just broken through resistance just at the $177 mark." This move leads Gordon to think the stock could soar into uncharted territory. (It was down slightly in Wednesday's premarket, trading at $175.61.)

"We should be able to go up and challenge the upper end of the trend channel here, so we'll see if earnings gives us the boost that we need to potentially get over $190," he added.

In other words, Apple could be headed for a 7 percent rally on earnings.

Gordon wants to take advantage of a possible surge in Apple by selling a put credit spread, as implied volatility in the stock is rising leading into the Feb. 1 report. As a result, he is selling the February monthly 175-strike put and buying the February monthly 170-strike put, collecting a total credit of $1.74. This trade sees profits if Apple closes above $175 on Feb. 16.

But Gordon would lose up to $326 if Apple closes below $170 on expiration. While that is currently below current levels, Gordon wants to make sure he establishes a point at which to stop out of the trade to avoid such a loss.

"If we start to drop back below this $173 mark, I would say this breakout is in jeopardy and we want to exit this trade before earnings," he said.